College of Business study finds employees are less likely to report fraud if offered financial reward

And the greater the fraud amount, the more likely it is that a reward will be offered.

FAU’s College of Business on the Boca Raton campus. Photo courtesy of Wikimedia Commons.

Tyler Gidseg, Contributing Writer
October 12, 2017

An FAU professor found that if the risks of reporting fraud are believed to be higher than a monetary incentive, people are less likely to notify others of the illicit activity.

“When you mention financial incentives to potential whistleblowers, you change the decision frame from ‘doing the right thing’ to that of a cost-benefit analysis,” assistant professor of accounting James Wainberg said, according to Cision, a PR newswire and software company.

FAU assistant professor of accounting James Wainberg. Photo courtesy of the FAU College of Business

Many companies either offer, or are looking to offer, financial rewards to people who report fraud. Although, many will only offer a reward if a certain amount is recovered.

The Securities and Exchange Commission offers a monetary award to whistleblowers if a report leads to the recovery of at least $1 million. Alternatively, the Internal Revenue Service will only reward an employee if $2 million is recovered.

Ultimately, the research concluded that if there are financial incentives available, whistleblowers will wait until the fraud amount reaches the reward cap before they report on it.

Even further, the study suggested that some people will be apprehensive to report fraud because of the risk that making a claim might negatively affect them in some way.

Wainberg said, “As a result, when the perceived risks of reporting are greater than the potential rewards, people will be much less likely to report frauds than had they not been told about the existence of an incentive program to begin with.”

Wilfrid Laurier University assistant professor of accounting Leslie Berger and Providence College School of Business associate professor Stephen Perreault contributed to the study as well. The study was published by the American Accounting Association in “Auditing: A Journal of Practice and Theory.”

Tyler Gidseg is a contributing writer with the University Press. For information regarding this or other stories, email [email protected].